Vale plans to extend transport service to third parties

After deploying its own iron ore marketing logistics, Vale wants to take advantage of the know-how acquired over decades to expand its general freight transportation business, which includes from grains to industrial goods. The company wants its subsidiary Valor da Logística Integrada (VLI) devotes itself exclusively to the carriage of third parties’ goods, A promising lode in light of national logistic system deficiencies. The estimated investment of the new company, of which 70% capital will be sold to strategic partners, will be 4.5 billion dollars in five years.

Established in late 2011, VLI was introduced in the list of assets that should be sold wholly or partly so that Vale could focus on priority segments, such as iron ore and copper. According to the plan half the capital of the company should be sold, but demand was higher than expected. Today, the Vale considers the possibility of keeping 30% of the company.

At least 12 companies have shown interest. In recent days, leaders of the mining company have been addressing to the corporate design of the subsidiary to submit the project to the Vale Board of Directors this month. The 9 billion investment plan will depend on new partner’s approval and includes railroad revitalization, the purchase of 230 locomotives and 200 railcars, the construction of warehouses, and the expansion of port terminals.

Plans to build three warehouses

Thus, Vale wants to replicate the model implemented for iron ore, by which it controls the supply chain from mine to port. In the case of VLI, the company will monitor the freight flow from warehouse to port. VLI the investment plan includes constructing at least another three warehouses: one in the state of Minas Gerais, and two in the state of Tocantins. Today, the company operates two integrated terminals (where the warehouses are located), one opened last October in Araguari (Minas Gerais), with capacity of one million tons per year. With the new facility, loading of trains, which was made in three days now take just four hour.

“We usually focus on only the railroad, but we should also optimize the ends,”  Vale Research and Mineral Research Executive Director Humberto Freitas said.

With the approval of the Ports’ Provisional Measure last month, VLI also plans to invest in this area. One option is the Mearim Port in the state of Maranhão.

“The VLI will invest in ports. It is paying close attention to ports’ capacity in the North. With  five million tons grain capacity, Tegram (public terminal which is being built at Port of São Luís) will alleviate that system. When this becomes a bottleneck again, it will be time to think about Mearim ” Freitas states.

VVLI will concentrate its operations in three logistics corridors. One will connect the states of Goiás and Maranhão. The freights will be carried by North-South railroads to a terminal at Port of São Luis,   creating a marketing alternative for agribusiness. Today, 92% of soybean exports, for example, are concentrated in  Santos ports in the state of São Paulo  and Pananaguá in the state of Paraná.

Law change influenced the strategy

Another corridor will encompass the states of Minas Gerais and Espírito Santo, absorbing steel products and grains. The trains will travel Centro-Atlântica Railroad (FCA) and Vitória-Minas Railroad (EFVM) to Port of Vitória. There will also be a corridor connecting Minas Gerais to São Paulo. In it, the FCA will be used to transport sugar and grain to Port of Santos.

There are also two smaller halls, which will connect Minas Bahia and Minas to Rio, which are also being planned by the company.

Part of these assets, such as FCA and the South-North Railroad, belonged to Vale and has been transferred to VLI. Others, such as EFC and EFVM, remained under the umbrella of the mining company. If VLI need to use these railroads to meet its customers demand, this should be done through long-term contracts entered into with the holding company.

The reorganization of the company’s logistics strategy should also be understood in light of recent changes in the sector, which established the right of way. It was stipulated that any company which holds a locomotive can transport its freight by a railroad operated by third parties, provided that it pays a ‘toll’. Potentially, this means loss of customers and increased competition for Vale.

“”(We rearranged our strategy), first, as a matter of focus. Second, because it was requiring many investments. Third, the legislation opened this prerogative that trains may travel. And also as a matter of transparency. The staff complained that we prioritized our own freight in relation to third parties’” Freitas said.